Week 6 Finance Discussion Responses

Finance Week 6 Discussion One Responses:

Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. 

Airrol’s Post

Why is foreign investment so different from domestic investment?

The first item of note in the differences between foreign and domestic investment is the influence of politics. While it may seem like an event such as a change in leadership, currency crisis, or natural disaster in a distant country may not have much effect on another – it eventually starts a chain reaction if that country is a source for supply/assembly/labor/etc.

What should C-Level executives consider in expanding internationally, as compared to domestically?

If this company were to become a multinational corporations, what form would it take? An exporter produces domestically and sells internationally – making it the least risky endeavor since there are no long term commitments to a particular country. When an exporter can no longer compete with the local market due to newly imposed tariffs, they exchange the use of their technology with an independent local producer for a fee known as a licensing agreement. As an alternative to licensing, the firm may undertake a joint venture with a foreign manufacturer. When there are no good prospects for a foreign manufacturer that is able to participate, the next option is having a fully owned foreign subsidy. While it is the most risky option, it often lowers the risk of the domestic parent by diversifying their portfolio that much more.

What types of risk mitigation techniques could you suggest to the executives so that the firm can be successful in the proposed expansion?

Pay attention to foreign politics to understand which leaders will be welcoming to foreign investment and which will impose regulations and tariffs. Diversify sources as to limit the interruption of supply during local crisis. Consider that the rates of exchange and inflation will always be in flux and not in the same pattern as domestic economy. Understand that diplomacy is absolutely necessary to face criticisms such as: exporting local jobs, avoiding taxes, subverting governments, exploiting low wage labor, etc.

Block, S. (2022). Foundations of Financial Management (18th ed.). McGraw-Hill Higher Education (US). https://uaglobalcampus.vitalsource.com/books

/9781266040917

Benjaman’s Post

Why is foreign investment so different from domestic investment?

1. The foreign economy a firm bases operations in may be more complex or different than the business environment the firm operates in domestically in the U.S.

2. Foreign taxation laws and customs may be starkly different than what a firm experiences in the United States.

3. Foreign investment typically requires some sort of joint venture arrangement with a locally based “host” to decrease the amount of red tape and other governmental and cultural hurdles a firm may face when operating internationally.

4. Foreign-based operations may participate in labor practices or other business practices that are viewed poorly through the lens of commonly held standards in the United States and hurt a firm’s standing in the eyes of consumers or other businesses it wishes to transact with.

What should C-Level executives consider in expanding internationally, as compared to domestically?

C-Level executives will want to consider what type of entity will best serve the firm’s goals in a foreign market. Is the firm seeking to simply export its goods and/or services to buyers in a foreign market but not base any physical operations or investment in the target market? This may be the path of least resistance to expanding into markets internationally however tariffs and other geo-politically influenced factors that can have negative impacts on business may cause significant losses. One way around this potential pitfall is to develop a licensing agreement with a locally based producer in the foreign market the firm is seeking to transact in. However, loss of intellectual property can occur or create legal issues that may slow business and cause losses.

C-Level executives will also want to consider international expansion to preserve a competitive edge through market share acquisition.  If a firm limits itself to solely domestically based opportunities while its competitors successfully reap the rewards of international expansion, it may find itself relegated to a less-than-desirable position and not able to overcome the deficit.

What types of risk mitigation techniques could you suggest to the executives so that the firm can be successful in the proposed expansion?

Joint Ventures with firms in foreign-based markets enable a firm to tie itself to established political and cultural institutions and customs.  It signals to foreign officials and businesses alike that the entering firm is invested in growing its position in the foreign market which typically includes the growth of jobs, purchasing of locally derived resources, and more financially beneficial use of the foreign locales' tax codes and business laws.

If a firm is financially able and adept at forming meaningful relationships with major private and public figures in foreign market's business ecosystem, it may opt to go the route of being a fully owned foreign subsidiary.  However, fully owned subsidiaries may be faced with hostile political upheaval, insurmountable red tape that delays development, and unfair fees and/or fines that are weaponized by locally based competitors to push the subsidiary out of the market

Finance Week 6 Discussion Two Responses:

Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. 

Justus’s Post

Hello,

As a cash manager of a multinational corporation (MNC) based in the United States, I chose Japan to invest in for one year for several reasons.

First, Japan has a stable economy and a reputation for being a safe and reliable investment destination. This stability and reliability make it an attractive option for a risk-averse investor like myself.

Second, Japan has a strong credit rating, which adds to its appeal as a safe haven for investment. The country has a long history of being financially responsible, and its government debt is considered one of the most secure in the world. This means that investing in Japanese Government Bonds can offer a high level of security for my MNC's cash.

Third, Japan's interest rates are relatively stable compared to many other developed economies. For example, the JGB 10 Year Yield currently stands at 0.47%, which is higher than many other developed economies. While the yield is not as high as some emerging markets, the stability of Japan's economy makes it an attractive option.

 

Based on my analysis, I expect to earn a yield of approximately 0.50% on my investment in Japanese Government Bonds over the next year. This may not seem like a significant return, but given the stability and reliability of Japan's economy and the security of its government debt, it is a prudent investment decision for my MNC's treasury cash.

Overall, I believe that investing in Japan for one year is a wise choice for my MNC, and I am confident that it will yield a positive return while minimizing risk.

· Justus

Reference:  Japanese Rates & Bonds. (n.d.). Bloomberg.com. https://www.bloomberg.com/markets/rates-bonds/government-bonds/japan

Steven’s Post

Discussion 6-2

•    Describe why you chose that country and your expected yield for the next year.

I looked through the treasury bond rates listed throughout Bloomberg’s website. I looked specifically in the few nations contained in the tabs at the top of the screen and decided to look into the overview to try and get a complete picture of which countries were paying the highest rates.

Many of the economy markets are experiencing difficulties as the world is still reeling from the second order effects associated with the pandemic. It seems that the countries which were able to maintain a good amount of stability have lower returns for their bonds, while countries which are having difficulties are willing to raise their interest rates.

Japan was able to maintain stability and is only paying .46 percent with a +22 for their one-year bonds. There is little risk associated with the purchase of Japan’s bonds, however, an investment would have next to no profit after one year. Alternatively, the UK was experiencing issues with their currency a few months ago. Back in December the British pound dropped in value and the exchange rate was 1.10 dollars (Tajitsu, 2022). In an effort to battle inflation the central bank is issuing a raise in interest and now UK bonds have a yield of 3.85 percent and +189 for a one-year bond. The British pound is not going to collapse in a year, and investors will make their largest returns investing in their securities. 

There is always risk associated when it comes to investing in foreign countries. Not only do investors have to bear in mind the risk of economic collapse, but they also need to stay cognizant of the exchange rate between currencies. An investment in the Japanese market is secure and the investor is very likely to get their money back after a year. Alternatively, an investor stands to make much more of a return through UK investment opportunities and if the goal is to make money on investments, I recommend investing in UK bonds.